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Community Bank
March 24, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: Proposed Revisions to the Community Reinvestment Act Regulations
(12 CFR Part 345)
Dear Mr. Feldman:
I am writing to support the federal bank regulatory agencies'
(Agencies) proposal to enlarge the number of banks and saving
associations that will be examined under the small institution Community
Reinvestment Act (CRA) examination. The Agencies propose to increase the
asset threshold from $250 million to $500 million and to eliminate any
consideration of whether the small institution is owned by a holding
company. This proposal is clearly a major step towards an appropriate
implementation of the Community Reinvestment Act and should greatly
reduce regulatory burden on those institutions newly made eligible for
the small institution examination, and I strongly support both of them.
When the CRA regulations were rewritten in 1995, the banking industry
recommended that community banks of at least $500 million be eligible
for a less burdensome small institution examination. The most
significant improvement in the new regulations was the addition of that
small institution CRA examination, which actually did what the Act
required: had examiners, during their examination of the bank, look at
the bank’s loans and assess whether the bank was helping to meet the
credit needs of the bank’s entire community. It imposed no investment
requirement on small banks, since the Act is about credit not
investment. It added no data reporting requirements on small banks,
fulfilling the promise of the Act’s sponsor, Senator Proxmire, that
there would be no additional paperwork or recordkeeping burden on banks
if the Act passed. And it created a simple, understandable assessment
test of the bank’s record of providing credit in its community: the test
considers the institution’s loan-to-deposit ratio; the percentage of
loans in its assessment areas; its record of lending to borrowers of
different income levels and businesses and farms of different sizes; the
geographic distribution of its loans; and its record of taking action,
if warranted, in response to written complaints about its performance in
helping to meet credit needs in its assessment areas.
Since then, the regulatory burden on small banks has only grown
larger, including massive new reporting requirements under HMDA, the USA
Patriot Act and the privacy provisions of the Gramm-Leach-Bliley Act.
But the nature of community banks has not changed. When a community bank
must comply with the requirements of the large institution CRA
examination, the costs to and burdens on that community bank increase
dramatically. In looking at my bank, converting to the large institution
examination requires, among other things, that we devote additional
staff time to documenting services and investments, which we currently
do not do, and begin to geocode all of our loans that might have CRA
value. This imposes a dramatically higher regulatory burden that drains
both money and personnel away from helping to meet the credit needs of
the institution’s community.
I believe that it is as true today as it was in 1995, and in 1977
when Congress enacted CRA, that a community bank meets the credit needs
of its community if it makes a certain amount of loans relative to
deposits taken. A community bank is typically non-complex; it takes
deposits and makes loans. Its business activities are usually focused on
small, defined geographic areas where the bank is known in the
community. The small institution examination accurately captures the
information necessary for examiners to assess whether a community bank
is helping to meet the credit needs of its community, and nothing more
is required to satisfy the Act.
As the Agencies state in their proposal, raising the small
institution CRA examination threshold to $500 makes numerically more
community banks eligible. However, in reality raising the asset
threshold to $500 million and eliminating the holding company limitation
would retain the percentage of industry assets subject to the large
retail institution test. It would decline only slightly, from a little
more than 90% to a little less than 90%. That decline, though slight,
would more closely align the current distribution of assets between
small and large banks with the distribution that was anticipated when
the Agencies adopted the definition of “small institution.” Thus, the
Agencies, in revising the CRA regulation, are really just preserving the
status quo of the regulation, which has been altered by a drastic
decline in the number of banks, inflation and an enormous increase in
the size of large banks. I believe that the Agencies need to provide
greater relief to community banks than just preserve the status quo of
this regulation.
In conclusion, I strongly support increasing the asset-size of banks
eligible for the small bank streamlined CRA examination process as a
vitally important step in revising and improving the CRA regulations and
in reducing regulatory burden. I also support eliminating the separate
holding company qualification for the small institution examination,
since it places small community banks that are part of a larger holding
company at a disadvantage to their peers and has no legal basis in the
Act. While community banks, of course, still will be examined under CRA
for their record of helping to meet the credit needs of their
communities, this change will eliminate some of the most problematic and
burdensome elements of the current CRA regulation from community banks
that are drowning in regulatory red-tape.
Sincerely,
William H. Sedgeman, Jr.
Chairman & Chief Executive Officer
Community Bank
Bradenton, FL 34203
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